Tripadvisor Inc (NASDAQ:TRIP) reported its second quarter financial results in the after-hours on Thursday. The travel specialist reported weaker-than-expected results, as it missed the Street’s expectation for both profit and revenues. Tripadvisor Inc (NASDAQ:TRIP) reported total revenue of $405 million for the quarter along with adjusted earnings of $79 million or $0.54 per diluted share. Even though the company reported a 25% year-over-year increase in revenues, analysts’ were expecting the company to report earnings of $0.55 per share on revenue of $413 million. The company’s performance in North America was better, as the total revenue on the continent jumped by 31% year-over-year to $211 million, representing 52% of the total revenues. The company faced headwinds due to the strong dollar, which negatively impacted overseas revenues, like it did many other U.S-based companies operating globally. The earnings miss by the travel specialist company hit the stock hard yesterday, as it dropped by more than 13%.
The smart money appears to have predicted the headwinds that would be buffeting Tripadvisor in the near future. Heading into the second quarter, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in Tripadvisor Inc (NASDAQ:TRIP), with a total investment of $1.16 billion. That was a large drop from the 45 hedge funds which had a total investment of $1.11 billion in the stock at the end of 2014. Considering the fact that the stock jumped by more than 11% during the January – March period, we can see that hedge funds also pulled money out of the stock while it was riding high. Tripadvisor would not immediately falter and did gain another 5% or so in the second quarter, but is now down by about 4% since the end of the first quarter.
Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 139% over the last 34 months and outperformed the S&P 500 Index by 81 percentage points (see the details here).
Likewise, other research (not our own) has shown insider purchases are also effective piggybacking methods for investors that can lead to greater returns. That’s why we believe investors should pay attention to what hedge funds and insiders are buying and keep them apprised of this information. Looking at Tripadvisor Inc (NASDAQ:TRIP), President of Vacation Rentals at Tripadvisor, Dermot Halpin sold around 14,310 shares during the first half of 2015. One of the Directors at Tripadvisor, Liberty Tripadvisor Holdings, Inc. acquired one share on June 25.
Let’s take a look at the latest hedge fund action encompassing Tripadvisor Inc (NASDAQ:TRIP).
How have hedgies been trading Tripadvisor Inc (NASDAQ:TRIP)?
Of the funds tracked by Insider Monkey, Ricky Sandler‘s Eminence Capital had the number one position in Tripadvisor Inc (NASDAQ:TRIP), with around 2.45 million shares worth close to $203.4 million, comprising 3.1% of its total 13F portfolio by the end of March. The second-largest stake was held by Paul Reeder and Edward Shapiro of PAR Capital Management, with around 2.1 million shares valued at $174.2 million; 4% of its 13F portfolio was allocated to the stock. Some of the remaining peers that hold long positions contain David Goel and Paul Ferri’s Matrix Capital Management, Panayotis Takis Sparaggis’s Alkeon Capital Management, and Christopher Lord’s Criterion Capital.
Due to the fact that Tripadvisor Inc (NASDAQ:TRIP) has witnessed bearish sentiment from hedge fund managers, we can see that there was a specific group of fund managers that slashed their entire stakes in the first quarter. Interestingly, Eashwar Krishnan‘s Tybourne Capital Management dropped the largest investment in the stock of the funds tracked by Insider Monkey, by selling all of its 1.17 million shares during the first three months of the year. Patrick McCormack‘s fund, Tiger Consumer Management, also walked out of the stock by selling all 808,829 shares it had previously held.
Hedge funds displayed bearish sentiment on Tripadvisor Inc (NASDAQ:TRIP), as many hedge funds opted to walk out of the stock during the first trimester and many others opted to pull some of their investment out of the stock. Considering the company’s second quarter earnings miss and subsequent 13% drop on Friday coupled with the bearish hedge fund sentiment, we don’t recommend buying this stock at the moment.
Disclosure: None
